Chapter 2

The Global Business Environment

Sheikh Majedul Huq
 Outline
 Key variables in the global economic environment
 Population
 Economic Development:
GDP, GNP, Competitiveness, etc
 Trade
 Natural Resources
 Foreign Investment
 Environment
 Introduction
☆Effective international management starts with a kno
wledge of key variables in the global economic envir
onment.
 the size and growth rates of country markets; populations;
 trade volumes, compositions, and growth rates;
 natural resource bases and labor costs; and financial positions

☆An overall knowledge of the wheres, whats, whys, a

nd hows of the countries and regions of the world ca
n be used as an initial way to identify the threats and
opportunities that might arise in international operatio
ns.
 Ⅰ. Population
World Population Milestones
8 Billion (2024)
According to the most recent United Nations estimates, the human population
of the world is expected to reach 8 billion people in the spring of 2024.
7 Billion (2011)
According to the United Nations, world population reached 7 Billion on
October 31, 2011.
6 Billion (1999)
According to the United Nations, the 6 billion figure was reached on October
12, 1999 (celebrated as the Day of 6 Billion).

Previous Milestones
5 Billion: 1987 4 Billion: 1974 3 Billion: 1960
2 Billion: 1927 1 Billion: 1804
Population in the world is currently
growing at a rate of around 
1.14% per year.

The average population change is

currently estimated at around
80 million per year.

Source: worldometers.info
Source: worldometers.info
Source: Internetworldstats.com
 Implications
 The population trends have enormous implications f
or global employment.
 High population growth rates have implications for th
e types of products that are and will be in demand.
 Substantial variability exists among countries with re
spect to the concentration of the population within th
e country.
 International migration has a major impact on overall
trade and balance of payments.
 In China, Cargill finds a sweet spot
☆US agribusiness giant Cargill Inc is looking to further expand its presenc
e in China as the country's demand for diversified food products continues
to be on the upswing.
☆China, India and Brazil have become fast growing markets for internatio
nal agricultural product marketers and producers from the US and Europe.
☆According to the National Bureau of Statistics, in recent years the avera
ge person in China has been consuming 5% more meat, 10% more milk, a
nd 8% more cooking oil than five years ago.
☆"At Cargill, we believe that to meet the growing global food needs, one o
f the key essentials is an open global market. China's entrance into the W
TO was a critical step that ensured China could use the global food syste
m efficiently to fill in the gaps in its overall supply."
 China: a major market for books in English

 European and American publishers might be having a hard tim

e in their own markets but at least they have respite in China.
 China is now the world's biggest book publishing market by vol
ume with 7.7 billion books published last year, up 7.5% on the
previous year, according to the General Administration of Press
and Publication.
 According to the British Council, China is producing 20 million n
ew English speakers every year, more than the population of m
any countries. As a result, sales of books in English are soaring
: 14,708 book titles, mostly in English, were imported by China l
ast year, up 7.2% on the previous year.
Ⅱ. Economic Development
▲Indexes:
 GNP /GDP: the first rough measure of mar
ket size to capture the volume of goods an
d services produced and consumed in a c
ountry.
 Growth rate of GNP: signal of the speed at
which markets are growing
 GDP /GNP per capita: an indication of the
income levels, which can indicate the type
s of products in demand and wage levels
List of continents by GDP (nominal) 2013

Source: IMF （ 201

List of countries by GDP (nominal) 2013

Source: IMF （ 2013 ）

Countries by 2013 GDP (nominal) per capital

Source: en.wikipedia.org
China GDP Trends and Real GDP Growth Rate

Source:“China GDP trends ” ( http://www.starmass.com/)

 Major problems of the indexes
 Indigenous people in subculture economics(SCEs) do not participate
in the official economy (e.g. producers of handicrafts, cultural product
s and handmade clothing).
 Illegal goods and service not appearing in GNP statistics
— “Underground Economy”
 The prices for the same product may not be the same among
different countries when expressed in a common currency. (e.g.
Starbucks charges as much as 50% more on some of its products sold in China
than in the U.S., U.K. and India. The margin in China and the Pacific region is as
high as 32%, compared with 21.1% in the U.S. and 1.9% in Europe, the Middle
East and Africa.)
Method: Purchasing power parity(PPP)
If PPP is applied to relatively expensive high-income countries, it usu
ally leads to a fall in reported GNP per capita.
List of countries by GDP List of countries by GDP
per capita (nominal)2013 per capita (PPP) 2013

Source: IMF(2013)
 OECD comparative price levels
Purchasing power parity (PPP) is an economic theory and a technique used
to determine the relative value of currencies, estimating the amount of adjus
tment needed on the exchange rate between countries in order for the exch
ange to be equivalent to (or on par with) each currency's purchasing power.
Prive level (USA=100)
 All the indexes mentioned above are indications of
the past performance of the economy:
market size, income distribution, and wage rates.
 As with many areas of business management and
strategy, some indications of future performance
are useful:
World Competitiveness Report
(ranks countries based on hundreds of factors that are
thought to contribute to future growth)
The Global Competitiveness Index 2014–2015
rankings and 2013–2014 comparison

Source: The Global Competitiveness Report 2014–2015

The Global Competitiveness Index of China

Source: The Global Competitiveness Report 2014–2015

Investors' top 10 regional preferences
 Global cities index

Source:2014 Global Cities Index and Emerging Cities Outlook

Ⅲ. Trade, Natural Resources, and Foreign In
vestment

1. Trade
An analysis of the trade volumes, growth rat
es, composition, and destinations and sourc
es can provide useful insights into emerging
sources of supply, shifting comparative and
competitive advantage, and new markets.
The trends in the trade of manufactured goods

 The volume of trade is rising dramatically

 The number of source countries is rising as well
 The composition of the trade of many countries
has changed

◆These trends have been driven by the spread of product and p

rocess technology, the fall of transportation costs relative to prod
uction costs, and the reduction of tariff and nontariff barriers to tr
ade.
 Leading exporters and importers
in world merchandise trade(excluding intra-EU (27) trade ） 2012
(Billion dollars and percentage)

Source: WTO 2013 International Trade Statistics

 Leading exporters and importers
in world commercial services, 2012
（ Billion dollars and
percentage ）

Source: WTO 2013 International Trade Statistics

The structure of China’s international trade (percent)

Source: China Custom Statistics, various year

 China's changes on trade strategy
 China introduced its trade reform policy at the end of the 1970s
when China ranked 32nd among nations in global trade, due to
China's "Import Substitution" strategy.
 For several decades, China has built its economic strategy on f
our pillars: exports, foreign direct investment, fixed-asset invest
ment and domestic consumption.
 China's fast trade development is attributed to its implementati
on of a strategy and policy featuring "active absorption of forei
gn direct investments and encouragement of foreign trade dev
elopment" for the sake of coping with global economic integrati
on and international industrial relocation.
 2. Natural resources
 The relative value of unprocessed natural resour
ces in international trade had declined.
 A combination of technology transfer and relativ
ely low labor and land costs has lead to the expo
rt of fresh and processed agricultural and fishery
products.
 3. FDI
 Foreign direct investment (FDI) influences not
only the flow of capital but also the flows of
product and process technology and trade
patterns and volumes.
 FDI Confidence Index (2014)

Source: “The 2014 Foreign Direct Investment Confidence Report” by A.T. Kearney
 FDI of China
 For the first time since 2003, China has surpassed the United States as the
world’s largest recipient of global foreign direct investment (FDI). During
the first six months of the year, FDI flows to China totaled $59 billion, a
slight decline from $61 billion in the first half of 2011. Meanwhile, FDI
flowing to the U.S. reached $57.4 billion, a decline of 39.2 percent from a
year earlier.
Overcoming liability of foreignness
 As more Chinese companies clamor to go global, the
country has vaulted to become the world's third
largest overseas investor in 2012, a significant jump
from the sixth spot in 2011.
 Since 2000, China has pursued an active "going glob
al" policy to support the internationalization of its firm
s, and it has flanked these national policies with an a
ctive program.
 Chinese MNEs have become important outward inve
stors but they all need to be accepted in a non-discri
minatory manner as increasingly important players in
the world FDI market.
 Building up in the West
• Europe is experiencing the start of a structural surge in outboun
d direct investment in advanced economies by Chinese firms.

 Tencent, a China-based leading provider for

comprehensive Internet service, announced
Thursday it has set up a joint venture with
Indonesia largest media company PT Global
Mediacom in a bid to further explore the country
vast Internet service potential.

 In 2010, Geely, a Chinese automaker based in

East China's Zhejiang province, bought a 100-
percent share of the Sweden-based Volvo.
Volvo's sales volume is expected to hit 800,000
units by 2015.
 Ⅳ. The Environment
 For the multinational enterprise and its managers, there is an
awareness of the impact of economic development on the en
vironement.
 Water creation (and disposal), water supply and use, air qual
ity, overfishing and overlogging, acid rain, and so forth variou
sly affect business.
 E.g. in the Phillippines some Japanese companies have com
plained that new environmental standards for new investmen
ts are more stringent than they are in Japan.
 The number of constituencies that multinational firms are pot
entially answerable to has increased dramatically with the hei
ghtened awareness of our interconnectedness.